RAY SUAREZ: … one plan, for curbing emissions, is already used in Europe, and many say should be implemented in the U.S. It’s known as a cap-and-trade system.

To tell us how it works is Eileen Claussen, president of the Pew Center on Global Climate Change, a not-for-profit group which has been working on this issue with corporate and environmental leaders. She helped develop a similar system to deal with acid rain when she worked at the Environmental Protection Agency.

And let’s begin, I guess, in the most obvious place: What do you cap? And what do you trade?

EILEEN CLAUSSEN, Pew Center on Global Climate Change: OK. You cap emissions, greenhouse gas emissions. And what do you trade? Well, everybody is given an allowance for how much they can emit of these greenhouse gases.

And some people can meet that limit in a way that costs them a lot of money, and some can meet it by a very cheap set of options. So why do you trade? Well, the one who can reduce most might want to trade the rest of his allowance to the one who would find it very expensive. So that’s how you get the trading.

But, really, what’s important here is that you actually have a cap.

RAY SUAREZ: And where’s the border on this cap? Stuff that you belch out into the air goes everywhere. Do Americans just trade the ability to pollute with Americans and Europeans with Europeans, and so on?

EILEEN CLAUSSEN: Well, actually, this is a global problem. So in an ideal world, if you’re looking at a cap-and-trade, you would have a global cap, and everybody would be allocated a certain number of allowances.

But I think, to be realistic, we are talking, first, about doing it in the U.S. We know what our greenhouse gas emissions are. We would cap those and then reduce them, meanwhile allocating fewer and fewer allowances to the facilities that emit.

RAY SUAREZ: Well, I can hear business people and people who emit CO-2 howling, “Well, that would put us at a competitive disadvantage to all those people that simply choose not to enter the marketplace and keep belching stuff into the air.”

EILEEN CLAUSSEN: Well, and that’s a legitimate point of view, I think. Right now, Europe already has a cap-and-trade system. If we do it, which I think is very, very possible, either in this Congress or the next one, we would probably join Europe.

And I think that the big emitting countries that are not already a part of this ought to be able to join in, too, although it may take some of them longer than it either took Europe or will take us.

First steps to reduction

RAY SUAREZ: Well, you talk about capping. And by emitting as much as we're emitting into the air now, we got the problem that we have. So how do you get eventual reductions if the first step is to just stop where you are?

EILEEN CLAUSSEN: Well, I think it's important that you freeze your emissions first. You actually might have to take a little while to do that, because, if you look at any of the projections, we're likely to continue to grow emissions, so even capping our emissions would actually not be so easy.

But then I think you can set a series of limits that go out five, 10, 15, 20, 30, probably even 50 years, until we get to the levels where we really need to go, which is a 60 percent to 80 percent reduction in greenhouse gas emissions on a global basis.

RAY SUAREZ: Well, aren't there tremendous disincentives to participating right now? Isn't it easier to just keep on doing what you're doing?

EILEEN CLAUSSEN: Of course it's easier, but that doesn't solve the problem. I mean, I think what we really need is to cap and reduce our emissions. And we think that doing it with a cap-and-trade system, the trade part, letting us do it in a cost-effective way, is the most important thing to do.

Monitoring emissions

RAY SUAREZ: How do you check whether people are cheating? If someone enters the marketplace as an efficient emitter and thus gets these abilities to sell their extra capacity to somebody else, isn't there some incentive to just say, "Well, yes, I'm efficient," make the money on the sale, and just keep burning what you're burning?

EILEEN CLAUSSEN: Yes. We actually dealt with that in the acid rain program, also, because, really, if you cannot be really sure that the emissions that you are trading or emitting are real, you have a serious problem, because the market simply won't work if there are a lot of emissions that are not real that enter into the market.

Actually, under the Clean Air Act as it currently stands, electric utilities already employ continuous emission monitors. So there is a record every few minutes of the greenhouse gases that are emitted. And we think you need a system like that so there are records and it is clear that what you're doing is real.

RAY SUAREZ: But you envision scaling that up to take in a lot more participants in the marketplace, right?

EILEEN CLAUSSEN: Yes, although we believe that the cap-and-trade really works best with large facilities. You don't want to bring in the little ones. Maybe you deal with them in a different way. You probably don't deal with the products, like automobiles or washing machines or refrigerators, in quite that way. For those kinds of emissions, you might need standards.

RAY SUAREZ: Well, I'm a CO-2 emitter. I mean, if you went to my house, the gas would be heating the water tank and heating the house during the winter.

EILEEN CLAUSSEN: You're probably...

Individuals' role

RAY SUAREZ: Do individual citizens constitute enough of an emissions problem that there should be some form of this that involves regular consumers, as well?

EILEEN CLAUSSEN: I don't think so. I mean, I think the system would break down. It would be much too complex.

So I think you go after the big emitters, for example, the electricity generators. Don't forget, a lot of your emissions actually come from your use of electricity. So if you do it at the level of the electricity facility, I think that's much better.

And the other things that you use, like, you know, your refrigerator, all the other -- you know, your computer, your stereo system, all of those things I think are better done by use of standards.

RAY SUAREZ: So how does individual consumer choice inform this marketplace? Is there a way that I can more easily or more cheaply buy things from green companies than dirty ones?

EILEEN CLAUSSEN: Well, I think, if there's a price -- I mean, part of the rationale for a cap-and-trade system is you're really putting a price on emissions. So, in an ideal world, where you're actually capped and reducing emissions, you should find the kinds of products that would make you a much smaller emitter, because they would be on the market, because that is what people would be producing.

Incentives to change

RAY SUAREZ: Is the pricing such that it actually would be a bad business decision to keep on polluting? How does the price get set? Because, theoretically, I guess, you could make a decision in the boardroom that, "Hey, that old, dirty plant is working for us now. We'll just buy those permits to pollute, and it makes more sense than buying a new plant that's cleaner."

EILEEN CLAUSSEN: I mean, I think, at some stage, when the cap is not that stringent, that might be a decision that some people make. But don't forget: What we are really interested in is all of the emissions together, because it really doesn't matter where you emit greenhouse gases. They all go everywhere.

So, if one plant does better and one decides not to make that kind of a choice and to buy credits, you're still going to make your cap, because it's the total that really counts. And at some point, when the price gets too high, you probably will make a decision to change that plant.

RAY SUAREZ: This sounds like a pretty long-term project.

EILEEN CLAUSSEN: Well, I think we're going to be in this business of reducing emissions for 50 years. What we really need is a system that gets us where we need to go in 50 years. And, yes, it's a long process.

RAY SUAREZ: Are you getting signals from the kinds of businesses that you're talking about capping that they would be willing to enter this kind of regime?

EILEEN CLAUSSEN: Yes. I mean, we at the Pew Center we have been working with companies since we were founded nine years ago. And way back then, when we had 13 companies we worked with, emissions trading was the policy choice. And now we have 43 companies, and emissions trading is still the policy choice of them.

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